The Federal Housing Administration (FHA), a government agency within the U.S. Department of Housing and Urban Development, was established in 1934 to improve housing standards. FHA does not make home loans, it insures a loan; should a homeowner default, the lender is paid from the insurance fund.
FHA loans are designed to help lower income borrowers afford a home. They require lower minimum down payments and credit scores than conventional loans. FHA loans are popular among first time homebuyers because of their more lenient lending standards and the government backing, which reduces risk for lenders.
There are a variety of FHA loan programs available including:
FHA Home Mortgage 203B. The FHA 203B is the most commonly used FHA loan. This program provides financing for the purchase or refinance of a primary residence. Homebuyers can borrow up to 96.5% of the home’s value, allowing them to make a down payment as low as 3.5%. The 203B loan is ideal for individuals who do not have the funds for a larger down payment.Borrower's can also take cash out on a refinance up to 80% of the value of the property.
FHA Streamline Refinance. For homeowners who already have an FHA loan, the streamline refinance program offers an expedited process to refinance to a lower interest rate with less paperwork and no appraisal required. This can lead to significant savings over the life of the loan, especially if interest rates have dropped since the original loan was secured.
FHA Condominium Loans. FHA-approved condominium projects allow buyers to purchase condo units with FHA loans. This is significant as it opens up homeownership opportunities in urban and expensive areas where purchasing a single-family home might be out of reach financially. These loans are subject to specific requirements including limits on the number of units that can be rented out.
FHA 203K Renovation Loan. The FHA 203K loan is designed for the rehabilitation and repair of a home. It combines the cost of home improvements and the home purchase price into one loan. The 203K is an excellent solution for buying fixer-uppers or making significant renovations on a current home. This loan encourages revitalization of aging homes and communities.
To qualify for a FHA loan, you must meet certain criteria, such as:
Credit Score and Down Payment. The minimum credit score and down payment are:
| Credit Score | Down Payment |
|---|---|
| 580+ | 3.5% |
| 500-579 | 10% |
Employment History. FHA loan requirements include having a steady employment history, typically with at least two years of consistent employment.
Debt-to-Income Ratio (DTI): FHA loans allow a DTI up to 57%. This means that your total monthly debts plus your housing payment cannot exceed 57% of your gross monthly income. Debts can include student loans, credit cards, and any type of federal debt.
Occupancy. You must occupy the home as a primary residence only. FHA loans cannot be used for rentals, investing in properties, or vacation homes.
Property Requirements. FHA loans can be used to purchase a single family residence, a multi-family residence up to 4 units and approved condominium units. Property must also meet FHA specific property conditions.
Maximum Loan Amount Limits. FHA has maximum loan amount limits that vary by county. You can view the loan limits for each state we lend in by clicking the states below:
| California FHA Loan Limits | New York FHA Loan Limits |
| Connecticut FHA Loan Limits | Pennsylvania FHA Loan Limits |
| Florida FHA Loan Limits | Texas FHA Loan Limits |
| New Jersey FHA Loan Limits |
Lower Down Payments: As little as 3.5% down payment is required, making homeownership more accessible.
Flexible Credit Requirements: Borrowers with lower credit scores as low as 500 can still qualify for an FHA loan. In addition, FHA has more lenient guidelines for borrowers with a recent bankruptcy or foreclosure.
Higher Debt-to-Income Ratio: Compared to conventional loans, FHA loans allow a higher DTI, enabling borrowers with more debt to qualify.
Assumable Mortgage: FHA loans are assumable, meaning a future buyer can take over your loan under the same terms, potentially making it easier to sell your home.
While FHA loans come with the backing of the government, conventional loans are not federally insured. Here are the main differences:
Down Payment: Conventional loans often require a higher down payment than FHA loans.
Credit Score Requirements: Conventional loans typically require a higher credit score.
Mortgage Insurance: FHA loans require both upfront and monthly mortgage insurance, regardless of the down payment amount. Conventional loans only require private mortgage insurance (PMI) if the down payment is less than 20% and can be removed once equity reaches 20%.
Loan Limits: FHA has set loan limits which can be lower than conventional loan limits in some areas.
For borrowers that don't have the 3.5% down payment for a FHA loan, there are downpayment assistance programs that can help borrowers with the initial costs of homeownership. There are 2 types of assistance programs, forgivable grants and repayable loans.
These grants are a form of assistance that do not need to be repaid as long as certain conditions are met. These conditions often include:
Occupancy Requirements: The homebuyer must use the home as their primary residence for a specified period, typically five years or more.
Completion of Homebuyer Education: Many programs require the recipient to complete a homebuyer education course to help ensure they understand the responsibilities of homeownership.
If the homeowner complies with all conditions, the grant does not need to be repaid. If the conditions are not met, the grant may convert to a loan that the homeowner must repay.
These loans are provided as downpayment assistance with very favorable terms not typically available in the commercial lending market. Features of these loans often include:
Deferred Payments. Payments on the loan can be deferred for a number of years or until the home is sold, refinanced, or no longer the primary residence of the owner.
Low or No Interest: These loans may carry no interest or a very low interest rate, which makes them more affordable than regular loans.
Forgiveness Over Time: In some cases, these loans may be partially forgivable. A percentage of the loan might be forgiven for each year the homeowner remains in the home.
Eligibility for these programs often depends on factors like income level, credit score, and the location of the property. Homebuyers typically need to apply through specific agencies that administer these programs, such as local housing authorities or state housing finance agencies.
| Credit Event | Waiting Period |
|---|---|
| Chapter 7 Bankruptcy | 2 Years |
| Chapter 13 Bankruptcy | None |
| Foreclosure | 3 Years |
Getting pre-approved for a FHA mortgage is quick and easy with our online Loan Application. After completing the application, you will receive instructions on how to upload your documents. For a list of documents you will need to upload, see our Pre-approval Document Checklist.
Alpine Mortgage provides FHA loans in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Florida. Call us today at (800) 876-5626 to speak with one of our FHA home loan specialists or click here to have one of our FHA home loan specialists contact you.
You can view our current 30 Year Fixed FHA Mortgage Rates.
If you put down less than 10% when you obtained a FHA loan, mortgage insurance premium (MIP) must be paid for the life of the loan. If the down payment was 10% or more, MIP is required for 11 years. The only way to remove MIP on a FHA loan while in the mandatory preiod is by refinancing into a conventional mortgage once you have at least 20% equity in your home.
An FHA loan is particularly well-suited for first-time homebuyers, individuals with lower credit scores, or those who can only afford a small down payment. It's also beneficial for people who might not qualify for a conventional mortgage due to a less-than-ideal credit history or higher debt-to-income ratios. This type of loan allows buyers to purchase a home with as little as 3.5% down and offers more lenient credit requirements compared to conventional loans.
